The firm is assessing the opportunity to develop 'Smart Home' controllers (for home automation) to improve energy usage in a UK household by sensing room occupancy:

A) The firm is looking to invest 1.6 Million for which they expect initial Sales of 3,MN0,000 (where MN are the last 2 digits of your student id) that grow 20% annually. Product contribution is 40% (costings to be explained); indirect production costs are 264,000 and indirect operating costs (excluding advertising) are 210,000:

i. Develop a Project Cash Forecast for Years 1 - 3 and examine the project financials: Payback Period and Net Present Value (NPV) at a discount rate of 10%.

ii. Increase the discount rate till you achieve a negative NPV and use this to establish the project Internal Rate of Return.

B)Prepare market forecasts for Home Automation using the 'Innovation Adoption Curve' shown below with four years per category given UK Market size projections of 5MN Million (where MN =16):

1) Forecast Sales Revenues based on the likely Market Share for the firm (to be explained) and Projected Profits based on a Profit Margin for the project (24% to 40% is typical).

2) Examine the effect of a price increase of 10% given that the Price Elasticity of Demand is -2.4 in the UK market and -2.0 in international markets (where sales levels are double).